Scaling Up Inclusive Business April 20 2010

8/7/2019 Scaling Up Inclusive Business April 20 2010

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Written by Beth Jenkins and Eriko Ishikawawith Alexis Geaneotes and John H. Paul

Designed by Alison Beanland

International Finance Corporation and the CSR Initiativeat the Harvard Kennedy School

Rights and Permissions

The material in this publication is copyrighted. Quoting, copying, and/orreproducing portions or all of this work is permitted provided the followingcitation is used:

Jenkins, Beth and Eriko Ishikawa (2010). Scaling Up Inclusive Business: Advancing the Knowledge and Action Agenda. Washington, DC: International Finance Corporation and the CSR Initiative at the Harvard Kennedy School.

Cover PhotographsFrom top to bottom: Idea Cellular (Subrata Barman) Zain Madagascar (Andriantsoa Ramanantsialonina)

Anhanguera Educacional Participaes S.A. Coca-Cola Sabco Zain Madagascar (Andriantsoa Ramanantsialonina) Apollo Hospitals Enterprise Limited MiTienda (Jos Ral Prez, Fotografitura) Cemar (Nuru Lama)

The findings, interpretations, and conclusions expressed herein are those of theauthors and do not necessarily reflect the views of IFC or the Harvard KennedySchool.


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SCALING UP INCLUSIVE BUSINESS:ADVANCING THE KNOWLEDGE AND ACTION AGENDA

Beth Jenkins and Eriko Ishikawa

with Alexis Geaneotes and John H. Paul

APRIL 2010


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Acknowledgements

This report has been a collaborative effort.

Toshiya Masuoka, Jane Nelson, and Sujata Lamba providedvaluable substantive and editorial guidance, as well as overallvision and backing for the project.

Alexis Geaneotes and John H. Paul contributed research, analysis,and writing.

The report is based on 14 IFC client case studies and draws uponother research undertaken by IFC and the CSR Initiative at theHarvard Kennedy School on inclusive business, including recentresearch supported by the Bill & Melinda Gates Foundation.

The 14 IFC client case studies were written by Jonathan Dolan,Alexis Geaneotes, Piya Baptista, Soren Heitmann, Samuel PhillipsLee, and Sabine Durier. Gillette Conner provided editorial

guidance. A wide range of IFC investment and advisory servicesstaff shared information and insight with the case writers andserved as liaisons with the clients featured without their helpthe cases could not have been written. These allies include:

Alexandre Fernandes OliveiraAli NaqviAndriantsoa RamanantsialoninaAnil SinhaAnup AgarwalArata Onoguchi

Asela Tikiri Bandara DissanayakeAsheque MoyeedBradford RobertsBrian CasabiancaCarolina ValenzuelaChris RichardsColin WarrenDarius LilaoonwalaEdward HsuGene MosesInderbir Singh Dhingra

Ishira MehtaJamie FergussonLuc Grillet

Finally, the companies whose inclusive business models aredocumented in these case studies deserve an enormous thank-youfor sharing their experiences with us. Without their openness, thisreport would not have been possible.

Ludwina JosephMaria Sheryll AbandoMichele ShueyNuru LamaOlaf SchmidtOlivier Nour Noel

Omar ChaudryPatricia WycocoRick van der KampRoopa RamanSamuel DzotefeSamuel Gaddiel AkyianuSamuel Kamau NgangaSatrio SoehartoShamsher SinghSubrata BarmanSvava Bjarnason

Tania KaddecheYosita AndariZaki Uz Zaman


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Introduction 4

About this Report 5

The 14 Inclusive Business Cases 6

Advancing the Knowledge and Action Agenda 10

The Whole Pyramid Orientation 11

Starting Inclusive Business Models 12

Scaling Inclusive Business Models 14

Appendix 17

Case Studies 18

Key References 46

Table of Contents


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4 SCALING UP INCLUSIVE BUSINESS: Advancing the Knowledge and Action Agenda

In the last ten years, interest and activity have grown around the concept of inclusive

business the idea that it is possible to expand access to goods, services, and livelihood

opportunities for the poor in commercially viable ways. 1

Inclusive business is interesting for companies because it can offer new opportunitiesfor innovation, growth, and competitiveness at the same time as positive social anddevelopment impact. It is interesting for bilateral and multilateral donors, foundations,governments, and civil society organizations because it has the potential to drivedevelopment impact in self-sustaining, self-multiplying ways that do not requirecontinuous infusions of grant funding. And it is interesting for the poor because itbrings greater access, choice, and opportunity in their lives and futures.

The conceptual win-win is clear, and momentum is growing. Innovative inclusive businessmodels and high-profile efforts to document, publicize, and learn from them areattracting interest and inspiring action in this field. Business plan competitions and CEOcommitments are getting more people involved. Capital, expertise, and other forms of support are emerging from a range of sources from development finance institutions,multilateral and bilateral donors, foundations, and other impact investors to academics,NGOs, business associations, and consulting firms.

These early movers have begun to identify the challenges inherent in the practice of inclusive business. Companies doing business with the poor face a number of systemicconstraints, ranging from lack of infrastructure to low levels of knowledge and skills, tolimited access to finance for low-income consumers and producers.2 These translate intooperational and reputational difficulties like building the capacity of poor consumers andproducers, facilitating their access to finance, managing community expectations, andreducing their dependence on the firm.3 Indeed, as observers have begun to point out,large-scale success stories reaching large numbers of poor people directly or viareplication are still the exception, not the rule.

Meeting the needs of the four billion people living at the base of the pyramid today willrequire a quantum leap in the number of commercially viable inclusive business modelsoperating at scale. The barriers to starting and scaling inclusive business models mustcome down to open the field to a broader range of players, beyond the pioneering few.This report is intended to frame some of the key issue areas that need to be addressed tobring such a tipping point about.

Introduction

An inclusive business is one which seeks to contributetowards poverty alleviation by including lower-incomecommunities within its value chain while not losing sight of the ultimate goal of business, which is to generate profits. WORLD BUSINESS COUNCIL FOR SUSTAINABLE

DEVELOPMENT

Inclusive business models include the poor on thedemand side as clients and customers, and on the supply side as employees, producers and businessowners at various points in the value chain. They build bridges between business and the poor for mutual benefit. UNITED NATIONS DEVELOPMENT PROGRAMME

BOX 1 DEFINITIONS OF INCLUSIVE BUSINESS


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SCALING UP INCLUSIVE BUSINESS: Advancing the Knowledge and Action Agenda5

This report is intended to frame key issue areas that need to be addressed to move the

field of inclusive business forward toward greater scale and effectiveness building on

the considerable momentum that already exists.

We have chosen to do this by documenting and analyzing 14 inclusive business modelsdeemed to be commercially viable and scalable by the International Finance Corporation,having passed its investment due diligence process and received financing. We havecompared our findings to key findings in the literature to date, and identifiedopportunities for more in-depth new research.

The 14 cases analyzed here were selected based on availability of information for a firstlook into the inclusive business models in IFCs portfolio, with the purpose of setting thestage for more in-depth research going forward. This first look provides a preliminary analysis of the drivers, results, and key elements these inclusive business models share, as

well as a framing of key questions that should be asked as IFC digs deeper into its clientexperience for insight on how to develop commercially viable, scalable inclusive businessmodels. It is important to note that the sample of 14 models analyzed here is neither largeenough nor representative enough to be statistically significant. An initial scan of IFCsportfolio suggests that as many as 100 clients may be engaged in inclusive business(double that number if microfinance institutions are included).

About this Report

IFC, the private sector arm of theWorld Bank Group, is a multilateraldevelopment finance institutionestablished in 1956 with themission of creating opportunitiesfor people to escape poverty andimprove their lives by promotingopen and competitive markets indeveloping countries; supportingcompanies and other privatesector partners where there is a

gap; and helping to generateproductive jobs and deliveressential services to theunderserved. 4

To fulfill its mission, IFC offerscommercial investment debt andequity and advisory services tocompanies that do business indeveloping countries, with a focuson companies whose business

activities expand access to goods,services, and income generatingopportunities for underservedpopulations. As a result, IFCs clientbase offers a potentially rich veinof examples of companies thathave succeeded in inclusivebusiness despite the obstacles,achieving commercial viability,scale, and development impact.

BOX 2 INCLUSIVE BUSINESS AT IFC


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The 14 Inclusive Business Cases

Company Region (country) Industry Sector Group(s) Engaged

Anhanguera Latin America (Brazil) Education Consumers

Apollo Reach South Asia (India) Healthcare Consumers

Cemar Latin America (Brazil) Electricity Consumers

Coca-Cola Sabco Sub-Saharan Africa Agribusiness Distributors, Retailers,(Multiple) (Beverages) Consumers

Dialog South Asia (Sri Lanka) Telecommunications Retailers, Consumers

ECOM Latin America Agribusiness (Coffee) Suppliers(Central America)

FINO South Asia (India) Financial Services Consumers

Idea Cellular South Asia (India) Telecommunications Retailers, Consumers

Jain South Asia (India) Agribusiness Suppliers(Fruit and Vegetables)

Manila Water East Asia (Philippines) Water Consumers

MiTienda Latin America (Mexico) Wholesale Distribution Retailers

Tribanco Latin America (Brazil) Financial Services Retailers, Consumers

Uniminuto Latin America (Colombia) Education Consumers

Zain Sub-Saharan Africa Telecommunications Retailers, Consumers(Madagascar)

The 14 companies studied here are mostly locally-grown, as opposed to multinational. Among them, they are engaging low-income or otherwise underserved segments asconsumers, suppliers, distributors, and retailers. While they operate in a range of differentcountries and industry sectors, they have much in common from the drivers they are

addressing to the results they are achieving and the models they are using to get there.These common themes are summarized in this section.

Growth was the primary driver for the companies studied here to developinclusive business models.

For many of these companies, the base of the pyramid is a growth frontier within apotential market spanning the whole pyramid. Others grew up to serve base of thepyramid markets more exclusively. Regardless of scope, these companies saw a marketopportunity: an unmet need combined with a willingness and an ability to pay. In somecases, this ability to pay is a direct result of the inclusive business models ability toreduce the poverty penalty its customers used to pay a phenomenon in which the poorpay more for basic goods and services than the rich because they are largely underservedby formal markets (Manila Water).

TABLE 1CASES BY REGION, INDUSTRY SECTOR, AND GROUP(S) ENGAGED


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In other cases, the government boosted low-income customers ability to pay throughtargeted subsidies for household electricity access (Cemar), health insurance (ApolloReach), and micro-irrigation systems (Jain).

Case Growth Social R esponsibility Risk Mitigation Regulationor Mission

Anhanguera

Apollo Reach

Cemar

Coca-Cola Sabco

Dialog

ECOM

FINO

Idea Cellular

Jain

Manila Water

MiTienda

Tribanco

Uniminuto

Zain

TABLE 2DRIVERS FOR COMPANIES TO DEVELOP INCLUSIVE BUSINESS MODELS

Revenue growth is the most common business result of inclusive business

models for the companies studied here.

For some of these companies, revenue growth is coming from increasing numbers of customers or transactions per customer, or increasing market share. For those buildingthe capacity of low-income suppliers, it is coming from increasing access to premiums forhigher-quality, certified products. And for two companies the utilities it is comingfrom converting illegal connections into bill-paying accounts by finding ways to reach thepoor as formal customers. Other business results, like risk mitigation and social license tooperate, feature less prominently.

The most common development outcomes of the inclusive business modelsstudied are expanded economic opportunity and access to goods and servicesfor the poor.

These models are offering opportunities for producers and entrepreneurs to start and grow businesses as agricultural suppliers, beverage distributors, and retailers of products andservices ranging from groceries to airtime, often creating new jobs in the process. They arealso offering affordable access to better quality goods and services, from healthcare toeducation to water and electricity.


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Networks and technology platforms are critical for companies that need toreach vast numbers of low-income customers for their inclusive businessmodels to be viable.

Low-income customers are often low-margin markets, which must be served in highvolumes for a business model to be sustainable. The companies studied here are gettingthe necessary volumes through large networks at the consumer, retailer, and distributorlevels. Some companies have existing networks that can be leveraged (Tribanco). Othersare building new ones (MiTienda, Coca-Cola Sabco). Still others are partnering to accessthe networks of organizations that already aggregate large numbers of low-income peopleand can act as intermediaries (Idea Cellular and Zain Madagascar, working withmicrofinance institutions). Five companies are using technology to extend or managetheir networks more efficiently, bringing education, healthcare, and financial services tounderserved populations at higher quality and lower cost (Anhanguera, Apollo Reach,

FINO, Tribanco, and Uniminuto).Consumer, distributor, and supplier financing is allowing low-income individualsand enterprises to do business with the companies studied here.

Consumer financing is allowing individuals and households to pay for purchases onschedules that more closely match their cash flows both big-ticket items like ahousehold water hook-up (Manila Water), a hospital visit (Apollo Reach), or an education(Anhanguera and Uniminuto) and small but frequent, basic purchases like groceries(Tribanco). Supplier, distributor, and retailer financing is allowing individuals andenterprises to make purchases that are part of the normal business cycle, ranging from

agricultural inputs (ECOM, Jain) to cellular phones (Idea, Zain) to inventory (MiTienda)and even building renovations (Tribanco).5 Financing is being structured in a range of ways, from extended payment terms to harvest credits to longer-term loans, and it isbeing provided by the companies themselves and by external partners such asmicrofinance institutions and banks.


Access to finance is allowing... Consumers to do business with: AnhangueraConsumers Apollo ReachSuppliers ECOM

Consumers FINODistributors Idea CellularSuppliers and other Farmers JainConsumers Manila WaterRetailers MiTiendaRetailers, Consumers TribancoConsumers UniminutoDistributors Zain

TABLE 3THE ROLE OF ACCESS TO FINANCE IN NINE CASES


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Building the capacity of low-income suppliers, distributors, and retailers isintimately linked with their profitability and by extension the overall viabilityof the inclusive business models documented here.

The more skilled and efficient the suppliers, the greater the reliability, quality, and cost

savings for the company in procurement. The more informed the consumers, the easier itis to build new markets. The more productive the distributors and retailers, the greaterthe sales. In the cases studied here, agricultural suppliers are being trained on productivity and quality as well as eco-efficiency, labor standards, and other requirements for thetraceability and certification that buyers increasingly require. Distributors and retailers arebeing trained in marketing, accounting, managing their cash flows and their employees,and complying with the brand standards of the larger firm. Some companies are alsobeginning to provide financial literacy for their consumers. In building these types of capacity, inclusive business models often facilitate better access for the poor to formalmarkets.

Virtually all of the companies studied here are collaborating in one way oranother to operate their inclusive business models.

Some companies are collaborating with organizations with existing networks, whichcan act as intermediaries, to get to scale more quickly (Idea Cellular, Zain Madagascar).Others are collaborating to access or build physical infrastructure so as to reduce the endcost to the consumer (Uniminuto, Manila Water). Still other companies are collaboratingto provide access to finance for consumers, suppliers, distributors, and retailers(Anhanguera, Apollo Reach, Jain, Idea Cellular, Tribanco, Uniminuto, and Zain

Madagascar). Finally, a number of the companies studied here are collaborating to buildcapacity within their supplier, distributor, and retailer networks (Dialog, Idea Cellular,MiTienda, Tribanco, and Zain Madagascar). These companies collaboration partnersrange from other firms, to microfinance institutions, to government agencies, todevelopment finance institutions.


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To a great extent, the common themes described above support the main findings in the

inclusive business literature. For example:

G Networks and technology are critical for companies that need to reach vast numbers of

low-income consumers for their inclusive business models to be viable. Research by the

Inter-American Development Bank (IDB), United Nations Development Programme

(UNDP), and Monitor Group has recognized the challenges in reaching large numbers of

geographically dispersed individuals, ranging from infrastructure to information gaps.

Aggregators with existing networks what IDB calls platforms are considerd

particularly important to gaining scale rapidly. 6

G Consumer, distributor, and supplier financing allows low-income individuals and

enterprises to do business with larger firms. The literature on access to finance for the

poor is voluminous. As pertains to inclusive business specifically, UNDP and the World

Economic Forum (WEF) have identified lack of access to finance as a key constraint.7

InIndia, the Monitor Group has found that cash flow is king and that business models

that ignore the irregularities of cash flows in low-income segments are unlikely to

succeed. 8 Solutions range from microfinance, to harvest credits, to consumer financing,

to financing for small and medium enterprises.

G Collaboration is key. UNDP, WEF, the global social entrepreneurship organization Ashoka,

and others have all documented the importance of collaboration in enabling companies

to access assets, capabilities, and knowledge and to share cost and risk. 9 In its work on

the role of large firms in expanding economic opportunity, the Harvard Kennedy School

found that collaboration was a core component of over half of more than 50 inclusivebusiness models examined. 10

Inclusive business has reached a stage where it is critical to look not only at what themodels are, but also at how those models have started, evolved, reached commercialviability, and scaled over time. Based on an analysis of the 14 case studies documentedhere including their limitations, or what they did not cover this section frames threepriorities that need to be addressed to bring down the barriers to entry and ensure successin inclusive business. The first is a question of strategy; the second and third are questions

of process. The report concludes with a discussion of the roles that other actors can play,engaging with companies to start and scale inclusive business models and strengtheningthe ecosystem needed to nurture and enable these models.

The whole pyramid orientation Starting inclusive business models Scaling inclusive business models

Advancing the Knowledge and Action Agenda


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One priority to address in making inclusive business easier and more likely to succeed at

scale has to do with strategic focus. While many inclusive business models take a more or

less exclusive focus on the base of the pyramid, most of the commercially viable, scalable

examples studied here take more of a whole pyramid approach in which the poor are

segments within a much broader overall market, supplier base, or distribution network.

The whole pyramid orientation seems particularly prevalent in industry sectors wheresignificant physical infrastructure is required, such as electricity (Cemar), water (Manila Water), and telecommunications (Dialog, Idea Cellular, and Zain Madagascar). Cemar,for example, was required by law to electrify the entire state of Maranho in Brazilslow-income northeast region. The company was permitted to charge higher-income,higher-usage customers higher tariffs enabling it to cross-subsidize those with low requirements and abilities to pay, with the government providing additional subsidies.In the telecommunications cases, the companies started in markets at the top of the

pyramid to develop steady revenue streams and recoup their infrastructure investments, which eventually put them in a position to develop products and distribution channels forlower-income clients, with lower average revenues per user.

One reason the whole pyramid orientation is so prevalent among the 14 cases in thisreport may simply be that most are well-established companies. Only a few began with adistinct focus on the poor, like MiTienda or Uniminuto. However, the whole pyramidorientation of so many of the companies studied here as well as non-IFC clients like thecelebrated Aravind Eye Care may signal that new or more nuanced thinking is warranted on some of the assumptions that have become generally accepted knowledge in

the inclusive business space for instance, that doing business with the worlds [poor] will require radical innovations in technology and business models.11 Certainly, businessmodels that function well when dealing with affluent and middle-income customers areunlikely to work as well for low-income markets.12 A more important question is, indifferent industries and geographies and policy environments, what are the right strategiesfor commercial viability and scale.

There are a number of possible knowledge questions associated with the whole pyramidstrategic focus. For example:

When is a more exclusive focus on the poor the right choice for example because itencourages innovative and tailored products and processes?

When is a more holistic focus the right choice, in which low-income segments areamong many others for example, because this enhances financial viability, enablesscale, or promotes inclusion?

How can other actors help companies with a whole pyramid focus deepen theirengagement at the base for instance, through financing, capacity-building, orknowledge-sharing?

The Whole Pyramid Orientation


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Creating and deploying a new business model in any market segment is difficult, but

business models targeting the poor come with their own unique set of challenges.

A second priority, then, is to identify and systematize the approaches and processes that

have been used successfully to reduce the barriers to entry for would-be inclusive

business entrepreneurs and intrapreneurs within larger firms.

It is well-documented that companies doing business with the poor face systemicconstraints ranging from lack of infrastructure to low levels of knowledge and skills tolimited access to finance among low-income consumers and producers.13 These translateinto operational challenges at the firm level (see Box 3), particularly when approached with a business as usual mindset.

Starting Inclusive Business Models

Shortage of market information Lack of access to appropriate financing

(especially long-term) Mispricing of risk Finding staff with the right mix of business and

development expertise

Unrealistic expectations of return, time tobreak-even, and time to generatedevelopment impact

Low tolerance for failure

BOX 3 FIRM-LEVEL CHALLENGES TO STARTING INCLUSIVE BUSINESS MODELS

These systemic and operational challenges mean that starting an inclusive business modelis truly an entrepreneurial (or within large firms, intrapreneurial) endeavor. But noteveryone can secure the resources or take the risk involved in navigating uncharted waters.Learning from those who have would make it easier, cheaper, and more likely for others tofollow in their footsteps creating toolkits, advisory services, and databases of good

practices, for example, to systematize approaches to developing and deploying inclusivebusiness models within large firms.

In addition to understanding what the successful inclusive business models are, it is vitalto understand how those models were created. For example, dialogue between privatesector companies, development institutions, and others would both expand suchknowledge and facilitate public-private partnerships to act upon it. Research relevant tothis conversation could address questions such as:

How should a new inclusive business model be framed, funded, and supported? What are the most effective structures within a large firm e.g. internal venture funds,separate business units, cross-functional teams, and spin-offs?

How can other actors best engage with companies in the start-up process for instance,in sharing cost and risk and contributing other resources necessary to achievecommercial viability?

Where are the key influence points that need to be leveraged to create internal buy-in,and when and how should they be employed?


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What is the process for setting appropriate expectations among key stakeholders, andhow are these expectations best managed over time?

Where market data is scarce, what approaches (e.g. community engagement,partnerships, proxies) have been used to develop and test successful products,services, and business models?

What are the indicators that an inclusive business model is ready to scale, and what arethe most common mistakes to avoid?


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Many promising start-up inclusive business models fail to scale and realize their potential

for financial and development impact. A third priority is to better understand when and

how inclusive business models scale, identifying key enablers and critical success factors

in this process.

In inclusive business, scale is important for business reasons (to compensate for low margins and reach commercial viability) and development reasons (to match the scale of the need on a sustained basis). In many of the cases studied here, the potential for scalecomes from features such as:

a whole pyramid orientation, in which higher-paying customers enable the company to cross-subsidize or to recoup the cost of up-front investments and expand service tolow-paying customers at a low marginal cost;

networks that provide cost-effective access to large numbers of suppliers, distributors,

retailers, and/or consumers; and

collaboration and technology, which increase efficiency and expand reach.

The cases documented here show that despite such features, inclusive business models canstill take a long time to scale. While FINO has reached 12 million low-income customersin just four years, most of the other models have taken significantly longer to reach levels of scale appropriate to their countries and industries and most have further room to grow.The case research indicated that the pathways they are taking to scale are often iterative,rather than linear. Some companies think of it as one long series of pilots, with the modeladapting to circumstances and lessons learned. Seeing it through takes time, money,initiative and often senior executive buy-in and significant dedication from staff involved.

Virtually all of the companies studied for this report collaborate in one way or another. A key question is how to choose whether to collaborate, with whom, and how:

When and for what purposes should companies deploying inclusive business modelscollaborate for example, to gain access to networks and relationships; to remainfocused on their core competencies; or to share the burden of extending public benefits?

What kinds of collaboration lend themselves to scale?

Scaling Up Inclusive Business Models

Unrealistic expectations on timeto reach scale (i.e. scaling tooquickly or too soon)

Lack of access to adequatefinancing

Difficulty adapting the initialbusiness model to newgeographies and scalesof operation

Lack of appropriate partners innew geographies of operation

Lack of internal buy-in withinthe firm

BOX 4 FIRM-LEVEL CHALLENGES OF SCALING INCLUSIVE BUSINESS MODELS


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When isnt collaboration the right strategy from a commercial viability or scaleperspective, for instance for reasons of competitive advantage?

What are the various forms collaboration can take, from transactional (fee for service)to strategic (based on alignment of interests)? Under what circumstances, and for whatpurposes, is one more advantageous than another?

What partnership models can be used to leverage inclusive business platforms likemicrofinance retail networks, mobile payment systems, and utility customer bases? Which work and which dont, and why?

What can development institutions do in collaboration and partnership withcompanies to scale inclusive business models? What must be done at the level of theindividual business model or value chain, and what must be done within the broaderbusiness ecosystem?


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Inclusive business has reached a stage in its evolution as a field of practice where it is

critical and possible to deepen practical knowledge about both the models that work

and the process of starting and scaling them up.

Functional lessons on starting and scaling commercially viable inclusive business models will help companies learn from each others experience, accelerating their progress andincreasing their chances of success as time goes on.

Such lessons would also help the wide range of partner organizations bilateral andmultilateral donors, foundations, governments, civil society organizations, and others that are engaging with companies to build inclusive business models, providing insight onthe kinds of engagement that would be most catalytic for what companies at what stages.

Companies and their inclusive business models vary greatly in terms of size, industry, how exclusively they focus on low-income populations, the financial and social returns they areexpecting or targeting, whether they are local or international in origin, and where they operate. Different types of inclusive business models face different strengths, weaknesses,opportunities, and threats at different stages in their development. They follow differenttrajectories toward and may have different capacities for commercial success, scale,and development impact. An effective segmentation of these different companies andmodels, and a highly nuanced understanding of behaviors and needs within each segment, would enable partner organizations to provide the right services to the right businesses atthe right time. It would also help such organizations determine where it is necessary to actcollaboratively to address needs no single organization can address on its own.

Operating an inclusive business model means operating in the context of the complex,systemic challenges associated with poverty on top of the usual uncertainty associated with any business endeavor. As such, many actors will have roles to play in that modelssuccess. It is our hope that progress on the knowledge priorities framed here will helpequip all actors to play their roles in starting and scaling inclusive business models moreeffectively and, in doing so, greatly increase the number of commercially viable modelsoperating at scale for the benefit of even more of the four billion people living at the baseof the economic pyramid today.

Conclusion


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Cases 18

Anhanguera Educacional Participaes S.A. 18

Apollo Hospitals Enterprise Limited 20

Cemar 22

Coca-Cola SABCO 24

Dialog Telekom PLC 26

ECOM Agroindustrial Corporation 28

Financial Information Network & Operations Ltd (FINO) 30

Idea Cellular 32

Jain Irrigation Systems 34

Manila Water Company 36

MiTienda 38

Tribanco 40

Uniminuto 42

ZAIN Madagascar 44

Key References 46

Appendix


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AESAs target market consists of lower-incomeworking adults aged 18-30 that generally attendevening classes. The average monthly salary of

an incoming student is R$660 (approximatelyUS$290) per month, which increases to R$1,000(approximately US$450) upon graduation. Averagetuition is R$280.3 (US$195) per month, 20% to40% below AESAs main competitors.

The companys decision to focus on the lower-incomesegment has had a profound impact on its businessmodel. Recognizing that low-income students havedifferent educational needs throughout their lives,AESA has developed a comprehensive portfolio ofofferings along three lines of business:1. 54 Campuses 148,000+ students with access to

a wide variety of undergraduate, graduate andcontinuing education programs. Prices range fromR$199 to R$699/month.

2. 650+ Vocational Training Centers provide500,000 students per year with industry-relevanttechnical and vocational education and training(TVET). By emphasizing TVET in its business mix,the Company has helped to bridge the gap ineducation services between the secondary andcollege levels for low-income students that areunable to attend university. Prices range fromR$75 to R$120/month.

3. 450+ Learning Centers and a Distance

Learning Platform have enabled AESA to reach107,000+ students that are either far away fromits campuses or seeking greater flexibility in whereand when to study. This platform has also allowedthe company to offer short-term courses to collegegraduates (e.g. preparatory courses and placementexams). Prices range from R$159 to R$400/month.

The challenge for AESA has been to balance theprovision of affordable, high-quality education whileachieving a reasonable return on equity. The companys

business model has proven to be both profitable andscalable due to four key factors:i) National coverage that offers easy access for

working adults with busy schedules, in both urbanand rural areas;

ii) Standardized curricula , which minimize classpreparation time for instructors, and reduce thenumber of administrative and support staffrequired by the company;

iii)High-quality faculty, many of whom arepractitioners rather than full-time instructors; and

iv)Rigorous monitoring and evaluation to ensurestrong educational outcomes across programs andsites, and to identify and eliminate low-demandcourses that drain valuable resources.

Loans and scholarships have been critical successfactors in acquiring and retaining low-incomestudents. In 2008, the Company providedscholarships to 108,735 students in partnership withfederal, state, and local governments. On average,these scholarships covered 23% of student fees;27,677 covered upwards of 50% of fees and 8,757covered 100%. These scholarships are valued atR$134.7 million. AESA students also have access tomarket rate loans offered by a private Brazilian bank.

AESAs innovative marketing initiatives have alsohelped the company acquire and retain low-incomestudents. In addition to a variety of low-costpromotions, such as billboards and celebrityappearances, the company has garnered significantbrand recognition and goodwill through itscommunity outreach initiatives. In 2008, theseinitiatives allowed AESA students from a cross-sectionof programs to provide pro-bono services to morethan 800,000 low to middle income people. Forthese and other programs, Brand Analytics/MillwardBrown named the company a Top 100 Brand inBrazil in 2009.

Anhanguera Educacional Participaes S.A. INCLUSIVE BUSINESS CASE STUDY

ANHANGUERAS INCLUSIVE BUSINESS MODEL

COMPANY BACKGROUND

Anhanguera Educacional ParticipaesS.A. (AESA) is Brazils leading private,for-profit professional educationcompany. Founded in 1994 as a singlecollege, AESA is currently the largestpost-secondary education institution inBrazil, with approximately 255,000students distributed across 54 campusesand 450 distance learning centers, andan additional 500,000 students per yearenrolled in its vocational and trainingprograms. AESA educated over 755,000Brazilian adults in 2009, more than anyother educational institution in thewestern hemisphere. Through itsnetwork of campuses, distance learningand vocational training centers, AESA ispresent in every Brazilian state.

The Companys primary shareholder(with an approximately 25% stake) isthe Fundo de Educao para o Brasil,a dedicated investment vehicleestablished specifically to invest inAESA. The Companys founders ownapproximately 2% of its shares with thebalance (73%) held by institutionalinvestors, including leading emergingmarket funds and asset managers whoinvested in AESA following its InitialPublic Offering in 2007. AESA is thelargest publicly-held education companyin Brazil in terms of market value, withan estimated market capitalization ofR$3.05 billion based on official closingprice on December 31, 2009.

Anhanguera

Campuses

140+ thousand students 100+ thousand students 500 thousand students

Distance Learning Vocational Training

Government Entities Private Banks

IFC

Scholarships Student Loans


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IFCS ROLE AND VALUE-ADD

One of the key pillars of IFCs globalHealth and Education Strategy is toinvest in education projects withstrategic clients. These are predominately

larger, for-profit providers, which havethe ability to grow and operate inseveral markets and to movedown-market to serve lower incomehouseholds. In recent years, IFC has alsostrengthened its pipeline of technicaland vocational education and traininginvestments, recognizing that this typeof post-secondary education isfrequently the most affordable andrelevant to low-income working adults.

IFCs Health and Education Departmenthas invested approximately US$39.5million in AESA through two consecutiveprojects. IFC has also helped AESAclearly articulate its business lines andto expand its network.

While AESA has accomplished a greatdeal in Brazil, one of its greatestcontributions has been the demonstrationof a profitable and scalable businessmodel for serving low-income students.This is a model that IFC will continue tosupport in Brazil and that it will seek toreplicate through future investment and

advisory work in the region and acrossthe globe.

INCLUSIVE BUSINESS CASE STUDYAnhanguera Educacional Participaes S.A.

Post-secondary education in Brazil has historicallybeen the province of the public sector, withhigh-quality public universities offering highlyregarded degrees free of charge. The commitmentto free education created capacity constraints,however, with the result that only the best students typically those from wealthy families who attendedprivate high schools could access the publicsystem. Pent-up demand among low and middleincome students grew, especially as education policyreforms increased by an order of magnitude thenumber of students going through primary andsecondary school.

In the mid 1990s, the Ministry of Education beganaccrediting and licensing private sector providers to

serve pent-up demand for post-secondaryeducation. This created a market opportunity forentrepreneurs like the founders of Anhanguera.As the number of private post-secondary schoolsgrew from several hundred to several thousand,enrollment swelled from 2.4 million students in1999 to an estimated 4.9 million in 2007.

Today approximately 75% of all post-secondarystudents in Brazil attend private schools. Much ofthis growth has taken place in the lower incomesegments. Until recently, only 5% of students from

the two lowest economic quintiles were able toattend post-secondary school. Today, this segmentrepresents the fastest growing demographicentering post-secondary schools in Brazil.

AESA has achieved impressive financial resultsthrough consistent execution. From 2006 to 2009,net revenues and EBITDA grew from R$112.5million and R$21.6 million to R$904.5 million andR$188.6 million, respectively. During 2009, AESApreserved EBITDA margins in excess of 20%, whichare likely to improve as new campuses andacquisitions expand the companys reach over thenext 12 to 24 months.

In 2009, AESA educated over 755,000 Brazilianadults, of which more than 600,000 participated invocational training and distance learning programsthat allow low-income individuals to improve theirskills and earning potential while continuing towork during the day. The Company also strives topromote increased access to its programs byoffering students scholarships and loans inpartnership with the Brazilian government and aprivate bank. In 2008, AESA provided scholarshipsto 108,735 students valued at R$134.7 million.

Student surveys suggest that AESA graduatesimprove their earning potential by more than 50%.Whereas the average monthly wage of an incomingstudent is approximately US$290, he or she willtypically earn more than US$450 after graduating.What is more, the wage differential over theworking life of an AESA graduate is likely to bemuch higher. According to World Bank studies, theBrazilian economy displays a particularly large wagepremium between university and high school of339%, as compared to a 74% premium in theUnited States.

DRIVERS FOR ANHANGUERAS INCLUSIVE BUSINESS MODEL

RESULTS OF ANHANGUERAS INCLUSIVE BUSINESS MODEL

G Growing demand for tertiary educationG Government policy created a market opportunity for the private sectorG Research showing that as incomes rise, a disproportionate amount is spent on education

G Net revenues of R$904.5 million in 2009G EBITDA in excess of 20%G Approximately 755,000 students educated in 2009G Graduates earning potential increased more than 50%

IFCs Investment:$39 million in long-termdebt financing


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With over 25 years of experience in setting uphospitals across India and the world, Apollo is wellplaced to identify cities and towns that are in urgent

need of healthcare facilities and the type of hospitalsand services required. Accessibility is thus a keyfeature of Apollo Reach hospitals, which are locatedin less-developed population centers known as Tier IIcities in India. Earlier, patients would have traveledconsiderable distances to large cities, often at greatexpense.

Low cost is another key feature of Apollo Reachhospitals. Treatments in the Apollo Reach model cost20-30% less than at other hospitals in the Apollonetwork and other major hospitals. Apollo Reachhospitals are smaller, simpler facilities, offering more

limited but robust services than other hospitals inApollos networks. Each Apollo Reach hospital isbeing built to house 150 beds, 40 intensive care unitbeds, and five operation theaters. The range oftertiary care includes cardiac, oncology, radiology,neurosurgery, and other specializations. Otherservices and facilities include video endoscopy, bloodbank, check-up, radiology, complete lab, dental, ear,nose and throat (ENT), and eye care services. Apartfrom traditional ambulance emergency services,Apollo Reach hospitals also offer emergency airambulance services for life-threatening emergenciesand remote areas.

Another measure to increase access to qualityhealthcare and reduce costs is telemedicine. Withtelemedicine available at all Apollo Reach hospitals,people no longer have to travel long distances for asecond opinion or wait for weeks before they canmeet a specialist doctor. According to Apollo,telemedicine will improve patient care, enhancemedical training, standardize clinical practice, andstabilize costs.

These innovations, combined with a steady stream ofhigh-quality physicians, put Apollo Reach hospitalson a strong footing in underserved communities.

Hospitals located in semi-urban and rural areashave more difficulty attracting quality physicians.To mitigate recruitment problems, Apollo offersa fast-track career which gives doctors moreresponsibility and faster promotions if they workfor a few years in a Reach hospital. Apollos presencethroughout India is an advantage to facilitate thisrecruitment strategy as employees are aware thatthere are opportunities elsewhere once they havecompleted a rotation in a Reach hospital.

To make healthcare affordable to low-incomepatients, Apollo Reach hospitals treat both low- and

high-income patients. The higher fees paid by moreaffluent patients help make the hospitals profitablefor the parent company illustrating howcross-subsidization between high-income andlow-income consumers can bring affordable healthservices to the poor.

The Rashtriya Swasthya Bima Yojana (RSBY), theGovernment of Indias recently introduced nationalhealth insurance scheme for families below thepoverty line, also enables Apollo Reach to servelow-income patients. RSBY covers hospital expensesup to Rs. 30,000 ($659) for a family of five. Transportcosts are also covered up to a maximum of Rs. 1000($22) with Rs. 100 ($2.19) per visit. Each beneficiarypays Rs. 30 ($0.66) at the time of enrollment, whilethe central government pays 75% to 90% of thetotal premium depending on the state with thebalance paid by the state government.

Apollo Hospitals Enterprise Limited INCLUSIVE BUSINESS CASE STUDY

APOLLO HOSPITALS INCLUSIVE BUSINESS MODEL

COMPANY BACKGROUND

Apollo Hospitals Enterprise Limited(Apollo) is among the largest privateintegrated healthcare groups in Indiaand recognized as a leader in themanagement and delivery ofhigh-quality tertiary care in Asia.In addition to hospitals, Apollo ownsand operates clinics, diagnostic centers,pharmacies, and provides healthcaremanagement consulting, educationand training, and telemedicine services.The company is a forerunner inbringing state-of-the art medicaltechnologies to India for tertiary andquaternary care. Apollo also providesproject consultancy services to hospitalsin Africa, East Asia and the Middle East.

Apollo owns 30 hospitals and manages15 in India and abroad with a total bedstrength of 8,000. The company alsohas a network of 1,200 retailpharmacies. Apollos shares are listedon the Mumbai Stock Exchange andthe National Stock Exchange.

Dr. Prathap C. Reddy, a visionarycardiologist, started Apollo Hospitals in1983 despite great obstacles to privatesector health delivery. In keeping withhis mission of providing international

quality healthcare to all who need it,Apollo launched Apollo Reach Hospitalsfor smaller cities and their surroundingrural and semi-urban areas in 2008.

Apollo Hospitals Enterprise Limited

Apollo Reach Hospitals

IFC

Rural and semi-urban consumers

$50 M loan

Established hospital facilities in smaller cities

Emergency care, inpatient and outpatient services, telemedicine


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CEMARs concession mandates it to continuouslyinvest in its distribution network, but reachingMaranhos rural and low-income populations

presented the company with a number of challenges.Expanding infrastructure into rural and sparselypopulated areas represented significant capitalexpenditures. Moreover, the potential customer basewas approximately 88% residential of whom about70% were low-income meaning their power needsand tariff categories would be relatively low. Yet theneeds for power were clear, and for CEMAR thisrepresented a hugely untapped customer base.The challenge was therefore to develop the ruralpower market both profitably and inclusively.

In 2004, GP Investimentos, a private equity firm and

the former parent company of Equatorial, tookcontrol of CEMAR, which was left financially adrift inthe wake of Brazils 2001 energy crisis. Under thedirection of GP Investimentos, CEMAR adopted anew strategy, focusing on building a strong, stableplatform for future growth and rural electrification.At the same time, the government of Brazil launchedthe Light for All program providing the neededincentives to stimulate demand and develop theserural markets.

The company underwent major organizationaland operational restructuring, which focused onefficiency improvements in three main areas.First, CEMAR invested heavily in modernizingand expanding its distribution network, includingreplacing obsolete equipment, installing newdistribution lines and sub-stations and voltageregulating equipment. The modernization mitigatedtechnical power losses, a particular concern giventhat Maranho lacks any generation capacity andreaching rural areas requires transmission lines totraverse greater distances.

Reducing commercial losses was another keycomponent, addressed by many operationalimprovements to the network, such as upgrading

information systems, enabling precise GPS-basedlocation for distribution poles and automatingnetwork operations. This enabled CEMAR to improvecollection rates and combat electricity theft. Themodernization also led to significant reductions inthe frequency and duration of service disruptions andboosted service quality and customer satisfaction.

Finally, the management structure was dramaticallyoverhauled, focusing on reducing costs andincreasing productivity. Regional departments wereeliminated, and the management structure wasreduced from seven layers to three. Many operational

aspects were outsourced, such as billing, customerservice, and network maintenance. CEMAR focusedon providing stronger incentives, includingperformance-based bonuses for all its employeesand stock options for management.

CEMARs enrollment as an implementing agencyin the governments Light for All program obliged thecompany to electrify the entire state of Maranhoand to contribute 15% of the costs while governmentgrants and subsidized loans comprised the rest. Thiswas designed to reduce capital costs, as low-incomeand rural customers would have been unable to bearthe initial connection costs. The government alsoprovided incentives to promote demand in ruralmarkets through a low-income consumer subsidy.This program allowed residential customers classifiedas low-income to receive a reduction of up to 65%off their energy bills, with the reduction dependingon the amount of power consumed, such that thelowest users paid the lowest rates. In 2007, nearly65% of CEMARs customers were eligible for thelow-income rebate.

Cemar INCLUSIVE BUSINESS CASE STUDY

CEMARS INCLUSIVE BUSINESS MODEL

COMPANY BACKGROUND

Companhia Energtica do Maranho,or CEMAR, is the power distributioncompany servicing Brazils northeasternstate of Maranho. Maranho is one ofthe poorest states in Brazil, whose 6.2million inhabitants earn a per capitaincome 29% below the nationalaverage. With increasing demand forpower, and electrification a key elementto both improving the quality ofpeoples lives and fuel economicgrowth, CEMAR is working to bringpower to the entire state, with aparticular emphasis on rural andlow-income segments. Since 2004, thecompany has participated in a Braziliangovernment program called Light forAll (Programa Luz Para Todos ) aimingto bring about universal access toelectricity throughout the country.At the end of 2009, CEMARsgeographic coverage spanned 97%of the state, with approximately onemillion of its residential subscribersclassified as low-income.

The companys primary shareholder isEquatorial Energia, a publicly listedholding company with 65.1%ownership, whose investments targetpower generation, distribution andtransmission primarily in Brazil. Thepublic power utility, ELETROBRAS,holds a 33.6% stake and minorityshareholders, which include CEMARsmanagement, hold the remaining 1.3%of the company. CEMAR is a regulatedutility company, with tariffs andcontracting obligations set by BrazilsNational Agency for Electrical Energy(ANEEL).

IFCFederal and stategovernments

Low-income householdsLow-income households

Cemar

Infrastructure installation,service provision

Consumptioncharges

$80M in debt

Funding forelectrification costs


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Brazils power sector reform lead to theprivatization and purchase of CEMARby Pennsylvania Power and Light (PPL)in August 2000. However, in 2001 low

rainfalls caused the countrys significanthydroelectric generation to plummet,creating an energy crisis that putdistribution companies under severefinancial pressure. As demand fell andcustomer delinquency increased,CEMAR faced mounting losses. PPLwrote off its entire investment andexited the Brazilian power sector in2002. Although the energy crisisabated, investor confidence did notreturn quickly and local companieswho previously had relied on foreign-

currency financing were left nervousabout facing foreign exchange risks.

IFC provided CEMAR an $80 millionReais-linked loan that helped addressmarket failures stemming from theenergy crisis by offering local currencyfinancing at a longer maturitycompared to the market. Thetransaction also assured the applicationof IFCs environmental and socialperformance standards as CEMARexpands its distribution network.

INCLUSIVE BUSINESS CASE STUDYCemar

The primary driver for CEMARs inclusive businessmodel was a federal government program, Lightfor All, that created new market segments for thecompany to reach. The objective of the program,launched in 2003, was to connect 1.7 millionhouseholds and 12 million individuals by theend of 2010.

The northeast region of Brazil saw the highestneed for rural electrification, nearly half of the total,and consequently received nearly 44% of overallfederal funding, according to a report from the USCommercial Service. Total project cost was estimatedat R$9.5 billion ($4.3 billion), with 71% to be fundedby the federal government and the rest split amongstate governments and distribution companies.

Bringing power to over one million individuals underthe Light for All Program fueled the states demandfor more power. Brazils Institute of Geography andStatistics reports GDP growth rates for Maranhoaveraging 10% per year between 2004 and 2007.Strong economic growth, supported by increasedelectricity access and coupled with low starting levelsof consumption, has pushed electricity demandacross all customer segments, increasing CEMARselectricity load by 4.2% between 2007 and 2008,

outpacing the national increase of 2.9%. In 2009,the company reached an increase of 1.4% inelectricity load, outpacing the northeast regionsincrease of 0.2% and the national decrease of 1.0%.

CEMARs emphasis on efficiency gains proved awinning strategy: since 2004, the company hasseen consistent growth thats climbed into thedouble-digit levels. Net operating revenues andEBITDA have respectively climbed from R$526.1million and R$85.24 million in 2004 to R$1,148million and R$470.3 million in 2009, an averagerevenue growth rate close to 12% per year.Moreover, the reorganization quickly led to a dropin costs relative to revenues, stimulating a sharpimprovement in EBITDA margins, which climbedfrom 16.2% in 2004 to 40.2% in 2006, remainingaround 41.0% through 2009.

Strong increases in demand fueled this growth, withCEMAR seeing an average annual increase in totalresidential power consumption between 2007and 2009 of 8.5%. Moreover, as demand rose,customers posted high repayment rates of 93.4%,suggesting that both policies to stimulate economicgrowth and power demand among low-incomeconsumers were sustainable.

At the same time, CEMAR achieved significant gainsin the quality and reliability of service, with measuresof the length and frequency of interruptions droppingby 44.6% and 38.2% between 2006 and 2009.

Expanding distribution through the Light for Allprogram has had the greatest development impacts:CEMAR has reached over 230,000 new customers todate in rural Maranho, directly reaching over onemillion inhabitants under this program. And throughexpansions outside the program, CEMAR has

increased its reach to over 300,000 additionalcustomers, growing from a total of 1.161 million in2004 to 1.688 in 2009. Over this time, nearly 50%of this increase targeted un-electrified rural andlow-income segments. In 2010, CEMAR expects toreach a total 1.777 million customers. Access toelectricity is a fundamental element to improvingthe quality of peoples lives and driving economicgrowth, enabling both domestic and commercialrefrigeration, use of appliances, machinery andartificial lighting.

DRIVERS FOR CEMARS INCLUSIVE BUSINESS MODEL

RESULTS OF CEMARS INCLUSIVE BUSINESS MODEL

G Reaching a new customer baseG Better service is more efficient and less costlyG The Brazilian governments Light for All programG ANEELs low-income tariff structure

G 1.69 million customers reached by the fourth quarter of 2009G 230,000 new power connections under the Light for All programG Costs fell as efficiency improvedG Large service quality and reliability gains

G Power demand grew as the market developed and stimulated the states economic growth

IFCs Investment:$80 million in long-termdebt financing


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The Coca-Cola Company utilizes a wide range ofdistribution methods to ensure that consumers aroundthe world have access to its products. In East Africa,

CCS has adopted a manual delivery approach workingwith small-scale distributors to deliver products tosmall-scale retailers in densely populated urban areas.These distributors previously had limited economicopportunities and were un-employed or under-employed, working part-time or in the informaleconomy. As many as 75% distributors in Ethiopia and30% in Tanzania never owned a business before. Mostof the retailers they serve are kiosks or small storesserving neighborhood customers, and have enoughfunds and space to manage a few days supply at most.

The Manual Distribution Center (MDC) approach

was first developed as a pilot with 10 MDCs in AddisAbaba, Ethiopia, in 1999. By 2002, the company hadimplemented the successful model on a broad scalethroughout its markets in East Africa.

SABCO utilizes the following approach whenestablishing new MDCs:

1. Assess the need for MDCs: First, CCS collectsdetailed data on every retail outlet in the targetarea. This information is used to develop abeverage demand forecast and determine whethera new MDC is needed, ensuring that MDCs areintroduced in areas where they are likely to thrive.

2. Recruit MDC Owners: Next, SABCO salesmanagers identify and recruit candidates theybelieve would be good MDC owners. Successfulcandidates must plan to be directly involved in thebusiness on a full-time basis and have a strongwork ethic, access to a suitable site, sufficientfunds to support start-up costs, and goodrelationships with the surrounding community.

3. Define MDC Territory and Customer Base:Once a new MDC has been identified, CCS givesthat MDC exclusive access to the retail outlets in adefined geography based on a map that CCSprovides. The exact size of the territory is basedupon the terrain and anticipated volume of the

retail outlets it will service. Ideally, each MDCservices an area 1 kilometer in circumference,reaching a maximum of 150 retail outlets.

4. Provide Limited Start-Up Guidance andSupport: MDC owners are responsible forfinancing the start-up costs of their MDC includingbusiness licenses, pushcarts, rent, initial stock ofempty crates and bottles, and beverage supply.Occasionally, CCS offers credit for crates andempty bottles, which represent some of thebiggest start-up costs, though this is less frequenttoday than when the model first started. Ownershire their own staff, though CCS guides them onstaffing numbers and salaries.

Once new MDCs have been established, the most

critical success factor in the model is regular training,monitoring, and communication. The level ofinteraction with CCS staff largely determines howwell MDCs perform.

There are two regular points of contact for each MDC,which are the Area Sales Manager (ASM) and theResident Account Developer (RAD). ASMs are full-timeCoca-Cola SABCO employees who manage 10-20MDCs each, which they visit daily or every other dayto monitor supply and inventory, adherence to CCSstandards, and overall business performance. TheRAD, typically a part-time CCS staff member based inthe same neighborhood, develops retail accounts,regularly monitors and manages in-store beverageplacement and productivity, and generates orders asneeded. They also visit their local MDCs daily to checkstock and ensure routes are followed.

Through this interaction, MDCs are regularly coachedand supervised on warehouse and distributionmanagement, account development, merchandisingand customer service, which is helpful since moreformal training occurs less frequently. They and CCSstaff have access to a set of management tools SABCOhas developed to track inventory, sales, marketcompetitiveness, and overall business performance.

COCA-COLA SABCOS INCLUSIVE BUSINESS MODEL

COMPANY BACKGROUND

The Coca-Cola Company (TCCC) is thelargest non-alcoholic beverage companyin the world, manufacturing nearly 500brands and serving 1.6 billion consumersa day. In the 200 countries in which itoperates, TCCC provides beverage syrupto more than 300 bottling partners, whothen manufacture, distribute, and sellproducts for local consumption. Itsbottling partners are local companiesowned independently, or either partiallyor fully by TCCC.

Coca-Cola SABCO (CCS) is one of TCCCslargest bottlers in Africa, operating 18bottling plants and employing more than7,900 people in Eastern and SouthernAfrica. Headquartered in South Africa, it

is 80% owned by a private investmentgroup, Gutsche Family Investments, and20% by TCCC.

Coca-Cola SABCO INCLUSIVE BUSINESS CASE STUDY

Pushcart delivers to outlet Staff take orders and payment

Monitors performance Trains owner and staff

Branding, formulas, beverage syrup

$15 M loan

$12 M guarantee

$10 M equityIFC Coca-Cola SABCO

TCCC

Manual Distribution CentersManual Distribution Centers

Retail OutletsRetail Outlets


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IFC investment has played an importantrole in enabling Coca-Cola SABCO toexpand and modernize its operations inEthiopia, Kenya, Mozambique, Tanzania,

and Uganda particularly in Ethiopia,where it was considered a pioneeringinvestment in a country perceived to behighly risky. In 2002, IFC provided a $15million loan, equity of up to $10 million,and $12 million in bank guarantees inEthiopia and Tanzania. IFC also helpedaddress challenges associated withbanking requirements in Ethiopia byfacilitating dialogue with governmentofficials.

With this initial investment, the IFCplayed an important role in discussionsto scale up the MDC model at that timeand helped to create an inclusivebusiness model that would later becomethe core business model in East Africa.In 2007, on behalf of the Coca-ColaCompany, IFC conducted research toassess the MDC model in Tanzania andEthiopia and generate recommendationsfor improving the models business anddevelopment impact moving forward.This research alerted SABCO to theongoing opportunity and impact of

training, financing and womensempowerment in inclusive businessmodels such as the MDCs.

INCLUSIVE BUSINESS CASE STUDYCoca-Cola SABCO

In many countries, Coca-Cola primarily usestraditional distribution models in which largequantities of product are delivered via trucks or othermotorized vehicles to large retail outlets. Yet in muchof the developing world, such as East Africa, whereroad infrastructure, retail markets, cost implications,and customer needs differ, other distributionmethods have been developed ranging frombicycles to boats.

Thus, Coca-Cola SABCOs MDC model was born outof this business need to adopt its delivery model tolocal infrastructure, customer needs and marketconditions. Through the MDC model, SABCO hasbeen able to more effectively and efficiently reachsmall-scale retail outlets located in densely populatedurban areas where truck delivery is challenging. It hasbeen able to improve sales and customer service byproviding outlets with access to smaller, morefrequent deliveries of product.

The MDC model has helped CCS increase salesby improving customer service to small retailerscompared to the traditional model of distribution.Providing retailers with regular interaction andconstant access to products, the MDC modelenables them to carry less inventory and purchasemore on a demand-driven basis, addressing someof the financial and space limitations they face.In Ethiopia and Tanzania, more than 80% of thecompanys volume is now distributed throughMDCs. MDCs are CCS core distribution model inKenya and Uganda, where they are responsible for90% and 99% of total volume respectively. Theyaccount for 50% of volume in Mozambique andhave been used to a lesser extent in Namibia andelsewhere.

The MDC model has had development impact in

three broad areas. First, the MDC model createsnew opportunities for entrepreneurship andemployment in the formal sector. As of the end of2008, Coca-Cola SABCO had created 2,200 MDCsin Africa, generating over 12,000 jobs and morethan $420 million in annual revenues. Threequarters of MDC owners in Ethiopia and one thirdin Tanzania reported that they were first-timebusiness owners who previously held only part-time

jobs, or worked in the informal sector. MDCowners and employees support an estimated41,000 dependents. With the income they receivefrom their MDCs, they are now able to invest inhousing, health, and education for their families,as well as create job opportunities for relatives fromthe countryside.

Second, the MDC model has created new economicopportunities for women, both as MDC ownersand employees and as SABCO managers and salesstaff. Across East Africa, the MDCs have createdentrepreneurship opportunities for close to 300women. In Ethiopia and Tanzania, samples showedthat 19% and 32% of MDCs, respectively, wereowned by women. In addition, couples own a highproportion of MDCs jointly, many of which aremanaged by the women.

Finally, the MDC model has helped develop humancapital. The training SABCO provides to ensure thatthe business is successful benefits the MDC ownersand staff members who receive it even after theyleave the Coca-Cola system, helping them qualifyfor higher-skilled jobs and more lucrative businessopportunities.

DRIVERS FOR COCA-COLA SABCOS INCLUSIVE BUSINESS MODEL

RESULTS OF COCA-COLA SABCOS INCLUSIVE BUSINESS MODEL

G Increase sales and facilitate delivery in areas hard to serve with conventional trucksG Enable small but frequent deliveries to retail outlets

G Generated company revenues of US$420 M and improved customer serviceG Created entrepreneurship opportunities for 2,200 new MDC owners and over 12,000 jobsG Enable MDC owners and staff to support over 41,000 dependents and invest in health,

education, and housingG Built human capital through business and customer service training

IFCs Investment:$80 million in long-term debtfinancing across multiple projects


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In its expansion plans, Dialog has undertaken SouthAsias first quadruple play strategy, offering mobiletelephony, fixed wireless telephony, broadband

internet, and satellite-based pay television services.Quadruple play is an important element in reachingunderserved remote populations with wirelessservices, as it helps lower costs by leveragingsynergies across all four product offerings.

Another important element in reaching underservedpopulations is Dialogs distribution network. Dialoghas 32 primary distributors that work exclusively forthe company servicing and supervising independentretailers. Close to 40,000 retailers spread throughoutall provinces of Sri Lanka currently stock Dialogproducts. These include phone cards and SMS-based

reloads in which a user purchases airtimeelectronically through a retailer. These retailers keepmargins of 5-7% on the Dialog products they sell.

The typical Dialog retailer owns or operates a primarybusiness and sells Dialog airtime as an additionalsource of income. Approximately 60% of theseretailers run small grocery stores and 40% run shopsthat sell a range of communications products andservices such as telephones and Internet access. Onaverage, these shops are open 13 hours per day andhave 1.8 employees. 95% are sole proprietorships,50% have been operating for fewer than five years,and 15% are not formally registered. 81% of themhave not had any formal business training.

Because these are independent retailers withoutexclusive arrangements with Dialog, the companymust compete with other mobile network operatorsfor shelf space for its products. In part this is done byoffering competitive margins on the Dialog productsthey sell. However, the company has also found thathelping to facilitate business training and access tofinancing helps to build a loyal retail network the keyto promoting its brand and expanding its business.

To facilitate business training and access to financingfor the retailers in its network, Dialog has workedwith IFC on a capacity-building project called Dialog

Viyapara Diriya (DVD) that leverages a local languageversion of IFCs SME Toolkit. So far 1,835 retailershave participated in the program.

Through this project, Dialog and IFC provide theseretailers with training on business skills such asbusiness planning and tax compliance. These sessionsimprove retailers ability not only to manage and sellDialog products but also to operate their primarybusinesses grocery stores, communications kiosks,and other enterprises a facility that has helpedDialog draw and maintain loyal retailers even whilethe Sri Lankan mobile sector has become increasingly

competitive. This strong distribution network hasprovided a backbone for the companys efforts toexpand further into rural markets and connectlower-income consumers.

In addition to business skills training, the DVD projectaims to build loyalty and grow retailers business byfacilitating access to financing. For internal purposes,Dialog categorizes its retailers into three categories:Category A are super-grade dealers with monthly salesof Dialog products greater than $500; Category B areaverage-size groceries that sell between $250 and $500each month; and Category C are microenterprises thatsell less than $250 each month. The DVD training helpsretailers graduate into higher categories. While thecompany does not provide or facilitate credit forretailers, this system is laying the foundation by trackingand grading retailer performance over time, showingthe company and prospectively banks which onesare likely to be good credit risks.

Dialog is now coordinating with IFC to train a total of5,000 retailers by the end of 2010, including retailersin the post-conflict northern and eastern regions ofthe country.

Dialog Telekom PLC INCLUSIVE BUSINESS CASE STUDY

DIALOGS INCLUSIVE BUSINESS MODEL

COMPANY BACKGROUND

Dialog Telekom PLC is Sri Lankasleading mobile telecommunicationsservice provider with approximately6.3 million subscribers and a marketshare of around 49% in 2009.

In 1993, Dialog was awarded a20-year license to provide cellulartelecommunications services by thegovernment of Sri Lanka. The companyis 83% owned by Axiata Group Berhad,the leading telecommunicationscompany in Malaysia, and 17% ownedby independent shareholders. It is listedon the Colombo Stock Exchange.

IFC Dialog

Primary dealers

Secondary dealers

Outlets/Retailers

Customers

$15 M equity investment

MSME Training


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As the Sri Lankan mobile market grew,Dialog needed large-scale, long-termfinancing to expand and remaincompetitive as well as technical assistance

to strengthen its retail network.In this context, IFC provided $50 millionin long-term debt financing (which thecompany prepaid in early 2009) and $15million in equity to finance the companysoverall expansion and quadruple playstrategy. IFCs involvement also reassuredother lenders and helped Dialog mobilizeadditional financing. This was importantgiven that Dialogs expansion efforts areamongst the largest-ever in Sri Lanka andinvolve communication and media businessmodels that are new to local lenders.

IFC has also been involved in providingtechnical assistance to strengthen Dialogsretail network through the DVD project,delivering SME Toolkit-based trainingto improve their skills and businessperformance. A project of IFC, the SMEToolkit offers free business managementinformation and training for SMEs onaccounting and finance, business planning,human resources, marketing and sales,operations, and information technology.In collaboration with Dialog, IFC has been

able to tailor SME Toolkit materials to theSri Lankan context.

INCLUSIVE BUSINESS CASE STUDYDialog Telekom PLC

In 2007, Dialogs primary business area of mobiletelephony was growing at 27%; a relatively low levelwhen compared to the rest of Asia. In addition,growth was concentrated in wealthier urban regionsof the country. Dialog identified the need to connectthe unconnected; to extend the benefits ofconnectivity and communication to underservedrural segments and thus embarked on an aggressive

program of expansion with the provision of coverageand affordable service options as key drivers. By2009, penetration reached 66% and the market wasgrowing at an annual rate of 40%. With thecorresponding entry of new players into the market,Dialog identified the need for a strong and loyaldistribution and retail network offering economies ofscale.

Since its expansion in 2007, Dialog has acquiredmore than three million new subscribers at acompound annual growth rate of 32%, reaching a50% market share. Leveraging its quadruple playstrategy to reduce prices, Dialog has remained

the leader in the competitive Sri Lankantelecommunications market and has been able toexpand its reach into previously underserved groups,tapping into significant unmet demand. Increasedtelecommunications penetration is typicallyassociated with GDP growth and poverty reduction.It is estimated, for instance, that a 10% increase inmobile phone density leads to a 0.6% increase inper capita GDP. 14

Dialogs inclusive business model is not onlyexpanding access to telecommunications but alsoexpanding economic opportunity for the micro- andsmall-scale retailers that sell its products. During2006, Dialogs retailers earned $16.3 million selling

airtime. This translates to an average income of$408 per retailer. Capacity-building efforts, whichhave reached 1,835 retailers so far, are expected tohelp them increase their incomes even further.

DRIVERS FOR DIALOGS INCLUSIVE BUSINESS MODEL

RESULTS OF DIALOGS INCLUSIVE BUSINESS MODEL

G Growth and brand awareness, including in lower-income, more remote regionsG To maintain market share and competitiveness as the Sri Lankan mobile market expandsG As part of achieving these objectives, to build a loyal, high-quality retail network

G 6.3 million subscribers, an increase of three million since 2007G 32% compound annual growth rateG 49% market shareG $16.3 million in sales income for retailers selling airtime in 2009, approximately $408 per retailerG 1,835 retailers trained

IFCs Investment:$50 million in long-term debtfinancing and $15 million in equity


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IFCs value proposition to ECOM lies inits ability to provide both investment andadvisory services, including $25 millionin debt financing and $1.5 million in

technical assistance, of which IFC isfunding 50%. While investment andadvisory services are each availableseparately from other partners, IFCsintegrated offering has enabled ECOMto provide a package of financing andtechnical assistance helping farmersimprove their productivity, sustainability,and livelihoods.

IFCs relationship with ECOM in CentralAmerica has led to an additional $55million in debt financing and $8 millionin advisory services to support thecompany across Africa (Kenya, Tanzania,and Uganda) and Asia (Indonesia, PapuaNew Guinea, and Vietnam). Together,these new programs are expected toreach 80,000 coffee farmers, of which43,000 are expected to be certified.

INCLUSIVE BUSINESS CASE STUDYECOM Agroindustrial Corporation

Given the characteristics of coffee farming in CentralAmerica, ECOM must do business with smallholderfarmers. The company must also invest proactively intheir development: any loss of competitivenesswould threaten the companys supply chain.

Farmer competitiveness is also critical to ECOMsaccess to premium coffee markets. Demand forhigh-quality, certified coffee is increasing, withroasters, retailers, and consumers looking for variouscombinations of high quality, environmentalsustainability, traceability, and social standards.

Depending on market conditions, premiums paid forcertified coffee can be significant to the growers.As of 2008, 20% of ECOMs coffee was sold ascertified. The company aims to increase this figure to50-80% over time. This will be possible only if thesmallholder farmers in its supply chain canconsistently produce certified varieties in thenecessary quantities, making the availability ofsmallholder financing and technical assistancekey to the companys long-term vision.

The business and development results of ECOMsinclusive business model are intimately linked. As

smallholder farmers are reached with financing andtechnical assistance, they enjoy greater productivity,security, and earning potential. Meanwhile, ECOMstrengthens and secures its supply chain, expands itsaccess to high-quality, certified coffees, andcaptures the premiums they bring.

By June 2009, ECOM had purchased 481,606 bagsof certified coffee in the three years since the modelwas established, representing a premium of$3,692,000 paid to smallholder farmers in Central

America. This has been made possible through$17.4 million in seasonal financing to 14,149

smallholder farmers and technical assistance thathas enabled 10,145 farmers to work toward thecertification and quality standards of NespressoAAA, FLO-Fairtrade, and Nestec 4C. An additional3,282 farmers have improved their productivitythrough training in management, pruningtechniques, and the benefits of hybrid plants.

These results are encouraging and point to a greaterimpact potential as ECOM estimates it works withabout 125,000 growers in Central America.

DRIVERS FOR ECOMS INCLUSIVE BUSINESS MODEL

RESULTS OF ECOMS INCLUSIVE BUSINESS MODEL

G Need to ensure stability and security of coffee suppliesG Market demand for high-quality, certified coffees and related sales premiumsG Company vision to scale up its certified coffee trade

G Increased productivity for farmers reached, in some programs by more than 40%G 481,606 bags of certified coffee purchased, representing $3.7 million in additional income

for coffee farmersG Increased farmer loyalty to ECOM and more stable supply chainG Increased trade volumes of certified coffee

IFCs Investment:$80 million in long-term debtfinancing across various projects


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FINO offers a banking and payments system thatuses smart cards and agent-operated mobilepoint-of-transaction terminals to facilitate reliable,

low-cost financial transactions between institutionsand customers. With this system, FINO addresses anumber of challenges that financial institutions facewhen serving low-income customers in particular,including illiteracy, information asymmetry,inadequate infrastructure, security, and highlyimportant high cost relative to transaction size.The system enables users to overcome these barriersto achieve financial sustainability and scale in servingunder-banked populations.

FINOs core product offerings comprise severalcomponents, including:

Accounting and MIS systems: back-endprocessing systems that FINO builds and maymaintain to facilitate and track transactions at thefinancial institution

Point-of-transaction terminals: hand-heldmobile devices that 6,000+ FINO agents and theircustomers use to conduct transactions such asdeposits, loans, and payments

Biometric smart cards: authentication devicescarried by customers and agents alike to ensuretransactions are secure on both ends; each cardcarries fingerprints, demographic and financialrelationship information on a chip and a

photograph with cardholder details onthe face of the card

FINOs core system can be used for a variety offinancial transaction types for which specific productshave been developed. For example, in the savingsaccount product, the smart card enables people tocheck balances, transfer funds, make deposits, andwithdraw cash. The smart cards can also be used to

access services such as subsidies, payments, or creditas well as health, life, and weather insurance.Today, they are used by the government to transfer

payments under the National Rural EmploymentGuarantee Act and to administer health insuranceunder the governments health insurance programfor people below the poverty line. Other servicesinclude a remittance solution which enablesindividuals to send remittances from cash-to-smartcard, card-to-bank, or card-to-card; a depositsmanagement product that enables institutions toprocess recurring deposits or mutual funds; and acredit scoring solution for banks and MFIs with plansto extend to credit bureaus and financial riskmanagement services. Finally, one of its newestofferings, FINO MITRA, utilizes a mobile platform toenable agents to enroll and conduct transactions andend users to conduct mobile banking and commerce.

Although the revenue model varies by product andby client, FINO generally charges the financialinstitution ongoing rental fees for space on theirback-end system and for point-of-transactionterminals, annual maintenance fees for the terminals,and new card issuance fees. Some institutions mayopt to buy point-of-transaction terminals as well.Customers do not have to pay for any services exceptfor the remittance product for which they pay 20rupees, less than $.50, directly to FINO in exchange

for remitting up to 10,000 rupees in a singletransaction. 15

Currently, FINOs revenues are driven by one-timefees such as enrollment charges and sales ofpoint-of-transaction terminals. It anticipates that by2011, about 57% of its revenues will come fromrecurring revenue streams such as transaction feesand card and POT maintenance.

Financial Information Network & Operations Ltd (FINO) INCLUSIVE BUSINESS CASE STUDY

FINOS INCLUSIVE BUSINESS MODEL

COMPANY BACKGROUND

Mumbai-based Financial InformationNetwork & Operations Ltd (FINO) buildsand implements technologies thatenable financial institutions to serveunder-banked populations. FINO offersa suite of products to banking,microfinance, insurance andgover

Documents

Scaling Up Inclusive Business April 20 2010